Century Casinos Inc
NASDAQ:CNTY
Earnings Call Analysis
Q4-2023 Analysis
Century Casinos Inc
The company is embarking on strategic acquisitions and has laid out plans for expansion. They have recently reopened one casino and are looking forward to reopening others, moving towards having all eight casinos fully operational by the third quarter of the year. This expansion is part of a broader strategy that also contemplates a potential sale of their Polish operations.
The company is maintaining a healthy balance sheet with $171 million in cash and cash equivalents and a net debt reduced to $176 million from $347 million in outstanding debt. They are comfortable with their current leverage, albeit elevated due to recent acquisitions, and anticipate that it will normalize once these have been fully integrated and capital expenditure (CapEx) projects are completed by late summer. The leverage is expected to lower to closer to 2x traditional and 4x lease-adjusted next year.
With solid liquidity, no near-term debt maturities, and the capability to reprice or refinance their entire term loan without penalty, the company demonstrates a proactive approach to managing its debt profile. Furthermore, they have an additional borrowing capacity of $30 million under their revolving credit facility, which provides them with considerable financial flexibility.
The company has a clear plan to generate cash focussing on deleveraging and the possibility of share buybacks later in the year. With significant reductions in CapEx expected by late summer and revenue growth from renovated facilities, free cash flow is projected to improve substantially.
An effective management team has led to remarkable operational success in the Canadian segment, where EBITDA margins were up nearly 7% quarter-on-quarter. These results are not one-time spikes but are expected to sustain or improve, signifying strong operational health.
In Eastern markets, customers remain loyal, visiting properties with the same frequency as before. A noteworthy demographic growth is seen in the under-30 segment, with an increase of 26%. This diversification and consistency in the customer base are crucial in maintaining market resilience.
Looking ahead, the company paints a positive picture with an outlook for 2025 featuring approximately $700 million in revenue and EBITDA margins between 24% to 25%. They also anticipate CapEx in 2025 to be around $20 million to $25 million. This guidance suggests confidence in future performance and growth prospects.
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Good day, everyone, and welcome to today's Century Casino's Q4 2023 Earnings Call. [Operator Instructions]. Please note that this call is being recorded. And I will be standing by should you need any assistance.
It is now my pleasure to conference over to Peter Hoetzinger. Please go ahead.
Good day, everyone, and thank you for joining our earnings call. We would like to remind you that we will be discussing forward-looking information, which involves risks and uncertainties that may cause actual results to differ from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We provide a discussion of the risk factors in our SEC filings. I encourage you to review these filings.
Throughout our call, we refer to several non-GAAP financial measures, including, but not limited to, adjusted EBITDA. Reconciliations of our non-GAAP measures to the appropriate GAAP measures can be found in our news releases and SEC filings available in the Investors section of our website at cnty.com.
I will now provide an overview of the fourth quarter 2023 results as well as our view of how this at next year could evolve. After that, my co-CEO,Erwin Haitzmann; and our CFO, Margaret Davidson, will join me for a Q&A session.
For the quarter, we delivered net revenue of $144 million, an increase of 39% over Q4 of last year. The increase came from the additions of the nugget in Nevada and Rocky Gap in Maryland as well as good performances of our Canadian operations, offset by a weaker real customer construction disruption at a few properties and the temporary closures of 3 casinos in Poland.
Adjusted EBITDA was $25 million, up 17% over last year. Canada grow EBITDA by 50%, while Poland obviously saw a substantial decline. We did, like everyone else in regional casinos, experienced market softness during the back half of 2023, especially at the lower end of our customer database and in the retail segment. Coupled with higher costs and expenses across the board, margins suffered quite a bit.
We are in a transitional period and also in a traditional process at our company with lots going on at the same time. Our local management teams carry extra burdens with 2 major construction projects in Missouri as well as the integration of [ Macquarie ] and Rocky Gap. Remember, we acquired [ Macquarie ] and Rocky Gap less than a year ago, meaning we are still early in the process of managing everything as 1 cohesive portfolio. Considering all that, it was a solid operating performance in the fourth quarter and full year of 2023, with strong growth prospects going forward.
Looking at segment results for the quarter. Let's start with the Midwest, which includes our Colorado Missouri operations. Revenue was up 8% year-over-year. EBITDA was up 55%. In Colorado, the results of our Cripple Creek property were flat year-over-year. The one in Central City was down a bit caused by main road works on both highways that lead to Central City from the main feeder markets.
In Cripple Creek, a competing property print across the street from our casino right after Christmas. By now, they have their 300 rooms open as well as some of the F&B outlets. January saw a 17% increase in gaming revenue for the entire Cripple Creek market. We grew by 14%, an early indication that we benefit from the hotel rooms and our proximity to their property.
In Missouri, both properties posted revenue and EBITDA growth as well as better operating margins than in Q4 a year ago. A strong and encouraging result considering construction going on at both locations. The number of trips of our top-tier segment increased meaningfully during the quarter while the overall spend, the trip was flat. In Colorado Springs will, construction of the new land-based hotel and casino is progressing according to budget and schedule, plan to open in Q4 of this year. The new property will have a total of 74 hotel rooms, 12 gaming tables and over 600 slot machines, which is a 20% increase in gaming positions compared to the old [ River ] board and a 50% increase in gaming positions to our current interim casino.
Most importantly, the new property will provide significant operational efficiencies. It will be much more convenient for our customers and it will increase our catchment area. We are more excited than ever about this permanent move to land based. What we see now as we operate in a small temporary per million is very encouraging. The number of trips increased and so did spend per trip. So we really can't wait until the new facility will be opened in just about 8 months from now. [ Tecpetis ] fully funded by VICI at an 8% cap rate. Hence, it does not impact our liquidity position. The hotel construction in [ Colorado ] is also on budget and on time. We are very excited about the grand opening in 3 weeks from today on April 4. It will be great to see how the hotel will transfer that property into a full resort destination offering gaming, dining, conferences, concerts and more.
Total project cost of $31 million and that with cash on hand. As of December 31, we had spent approximately $23 million already. The balance of million will be spent in the first half of this year. Our East segment includes the Mountaineer Casino Resort and [ Races ] Virginia and the newly acquired Rocky Gap resort and Gulf in Maryland. That new acquisition revenue of the segment was up 44%, and EBITDA more than doubled. At Mountaineer, other operation for the casino, available hotel rooms and food outlets are still limited as a result of continued staffing challenges. However, our [ patient javan ] VICI program has greatly assisted us in improving our offerings.
Slot machines was flat in Q4, table games continue to be impacted versus prior year, which we believe is still due to sports betting in Ohio. We should get a better picture of that going into the first and second quarters of this year as we have just had the anniversary of Ohio sports betting. We plan to further enhance our entertainment offerings throughout the year to further diversify our portfolio, giving our guests more reasons to choose us for their entertainment.
As an example, we recently had a very successful M&A boxing event in [ Ohio ]. Rocky Gap experienced small growth at the upper end of the database, offset by declines in the lower tiers. From an age standpoint, the oldest and younger demographics increased, while the larger portion of the database, which is 40 to 30, decreased a bit. We plan to put strong focus on player development in the major feeder markets like Baltimore, Pittsburgh and Washington DC with the goal to migrate players to higher tiers and grow the overall database.
As most of you know, Rocky Gap its beautiful lake in Rocky [ Gates ] State Park. But up to now, the property did not have beach access for its customers. And recently, we got a proof to develop a nice beach area, and we'll make sure we have it ready for our customers before this summer. It will be another great amenity that will help drive additional FIT and resource travel to the property and will also allow us to increase resort fees.
Continuing to the West segment, which includes Nugget Casino in Nevada. The market saw mixed results during the quarter compared to prior year. Overall, the number of trips to the casino decreased, 30% per trip with all declines coming from the lower level customers. The top of the database was very healthy as theoretical win increased by 20%. From an age standpoint, the under-50 segment grew with [ sewing ] increasing by 10%, while the 50-plus demographic decreased by 3% we're optimistic that the second half of this year will be strong when most of the transitional extraordinary expenses as well as most project CapEx will be behind us. We have replaced a few key executive team members some positions left the Nugget right after the [ sale ] closed last year, which led to a somewhat challenging initial period. The team now is in great shape and is working on remodeling 3 restaurants and bars and is also getting ready to upgrade the sportsbook.
In addition, a new high-limit slot area will be going in. All of these high ROIC growth projects will be completed this summer. On the marketing, we expect to go live with marketing kiosks, along with the new marketing component of our loyalty player tracking system, also before the summer. The [ Renal ] Parks market is known as a player friendly venue market. So we want that improved flexibility with direct mail campaigns and improved marketing programs.
Renovations of the facade in [ Japan ] already, and it really looks great. Also, our entertainment and special events calendar is coming together nicely and points to a very busy summer season. In the Canadian segment, our 4 properties in [ ADNOC ] and Calgary saw revenue growth by 17% and EBITDA was up by very strong 50% in the quarter. All 4 were up in slot revenue in paper revenue as well as in EBITDA.
Access to our Central Casino and trail in Edmonton continues to be impacted by road construction, which will continue through April. The new sports brand launches that property is driving traffic and F&B sales and also awareness in the community, especially now that the Amazon OLS are performing better. So overall, a very promising performance in Canada.
To round out our segments, a quick look at Europe at our operations in Poland. The recent national elections triggered unanticipated licensing delays for 3 of our casinos, which caused quarter results to decrease materially compared to the year before. However, this -- earlier this year, we were awarded all 3 licenses again, and we reopened 1 casino in February already. We anticipate reopening the second one next week and the final one, which is the biggest of the 3 in a new location in the third quarter of the year. So from about August 1, we'll have all 8 casinos in full operation again. And that should also given the discussions approved. Still, our goal is to sell all Polish operations.
With that, let's discuss our balance sheet and liquidity position. Our book value per share $4 as of December 31, we had $171 million in cash and cash equivalents and $347 million in outstanding debt. Net debt is down to $176 million. As a result, traditional net leverage is 2.7x and these adjusted net leverage is now 4.9x. We are okay with our leverage as we don't charge our leverage just based on a onetime snapshot, but rather look at its development over a period of time. The leverage is elevated because of our recent significant acquisitions and investments. It will stay above the long-term range until we have fully integrated the acquisitions and we have completed our CapEx project later this summer around the third quarter. From then on, it should lower down to closer to 2x traditional and 4x lease-adjusted next year.
Our lease obligations to VICI currently total approximately $15 million per quarter. Once we opened a new land-based facility in Caruthersville towards the end of this year, it will go up by approximately $1 billion per quarter. So as a rough [ for ] next year for 2025, total lease payments to reach will be around $16 million per quarter. [ These ] payments on our Term Loan B currently amount to around $10 million per quarter. Please note that we have no near-term debt maturities in mature interest in 2029. And we have additional borrowing capacity of $30 million under our revolver.
We can reprice or refinance the entire term loan at any time without penalty. So as soon as the window opens, we want to act on it and improve our terms. As for our CapEx plans for this year, we are planning to invest a total of between $35 million and $40 million to our properties and that includes normal maintenance and replacement CapEx as well as the improvements at the [ market ] and in Canada and finishing the hotel in [ Caruthersville ]. All of these growth projects will help position our casinos for higher-value customers, and we deliver attractive return capital to drive growth in their segments. This elevated capital will be completed between now and late summer. What's left then is the big move to land based in Colorado [ Field ], but that is fully funded by VICI. So by late summer, we will see significant reduction in CapEx as we move forward. Free cash flow should be improved substantially both from revenue growth due to the improved facilities and the better customer experience and from a reduction in CapEx And perhaps we'll see a first [ lot ] interest rates by then.
Again, we are in a transition period right now, but we have a clear plan to fully focus on generating cash to deleverage and opportunistically also buy back stock later this year and next. We are fully focused on the projects that we have underway and are really looking forward to the end of this current intense CapEx cycle.
The third quarter of this year will present kind of an inflection point for free cash flow generation given the rolling off of the [ CapEx ] projects. Thinking about our performance in operations this year. As we look forward now, mid-January and early February were terrible from a weather standpoint. I think it's well understood across the market in the span of 3 to 4 weeks, most of the regional operators were significantly impacted by weather. So we, as everybody else, start in a January [ whole ] a storm request [ put ] it.
In mid-February, when it was more back to normal and we see that customer trends over the past 2 weeks rebounded to fourth quarter levels. We continue to keep close on consumer spending patterns and general economic conditions for impacts on our casino and resort customers. To share our outlook with you with all properties being in great shape in 2025, we see us approaching $700 million in revenue in 2025 with EBITDA margins into the 24% to 25% range. CapEx in 2025 should come in at approximately $20 million to $25 million. Operationally, we are proactive assessing every aspect of our properties having for cost reductions and enhanced efficiencies.
In closing, I want to reacterate our enthusiasm for the second half of this year and for next year. From the third quarter on and certainly [ 2024 ], results and free cash flow should improve significantly for these reasons. Q3 of this year, we marked the end of our elevated CapEx cycle. Then the [ market ] and Rocky Gap acquisitions will be fully integrated. Everything will be operated as 1 cohesive portfolio.
Also in Q3, all casinos in Poland will be up and running again. Then in Q4 -- opened a brand new land-based facility in Caruthersville. And from then on, we'll have no more construction disruption and all properties and operations across the entire portfolio are in the best shape.
The only other point I'm going to make is that from a guidance perspective, as mentioned earlier, last year, we had softness in the second half. We think that's an opportunity in the second half of this year since that comp is going to be a little easier to meet.
And that concludes our prepared remarks. We will now open the call for Q&A. Operator, go ahead, please.
[Operator Instructions]. Our first question will come from Jeff Stantial with Stifel.
Maybe start off here on the U.S. business. Peter, you talked about broad-based softening in the low-income consumer, which started midway through 2023. Can you just expand a bit more on how that's trended directionally as the low income consumer worsen, stay mostly stable? And then for the more mid- to high-worth segments, have you noticed any changes in behavior here sequentially across any of your markets?
Okay. This is Erwin. I'll take that question. We -- this is -- I think we have to look at it on the market, it differs a little bit. In the East, our customers are visiting our properties as often as before, I'll shed some lights [ left ] per visit. Visitation decline in Rocky Gap and in Mountaineer and the unique customer count decreased accordingly. From our near spend [ trips flat ] and for Rocky Gap mature. Customers are healthy. They visit most and they spend the same as last year. Prorata visitation is also the same. People spend slightly less. The mid and lower peers drive our business in Colorado. And the market overall visitation is slightly down. Unique [ patronat ] is flat. The younger demographic under 30-year rates increased by 26%, which is interesting and spent trip is flat. Overall, we don't think that inflation at this point in time needs to be a major concern for us.
Okay. Great. For all the granularity. And then for my follow-up, turning to the Canadian business, it looks like EBITDA margins were up nearly 7%. And quarter-on-quarter despite. And correct me if I'm wrong here, historically somewhat limited seasonality. Peter or Erwin, can you just expand on what's driving this? Are there any onetime benefits in the quarter? Is this just a strong execution on the cost side of things? Just any color would be helpful.
Not one time. And we think it's strong inclusion. We really have a fantastic management team there. And it took a while for Central mile to catch on, but now it has got on. We were able to also find a solid customer base there. And we have the recent beliefs that this will stay the same or get better, in fact, because, again, going forward, in the Edmonton Casino in a few months, there will be no more impediments due to traffic. And then we're also working on improving both the outside and the insides for the same order casino. So these are things that will be positive, and we look optimistically into the future in Canada.
Okay. Great. If I could just squeeze one more in quickly. It looks like to me, apples-to-apples CapEx guidance for 2024 was lowered a bit versus the $46 million that was cited in the press release when you reported preliminary Q4 results, Peter or Erwin can you just talk to this decision a bit more. Are you delaying out certain of the projects that you laid out for us in the Q3 presentation. And if so, what's the overall rationale.
Yes. We just -- so to speak, streamline the investments a little bit as we there -- obviously, that was a learning was delearning in that last time we were -- we thought we would do another almost upscale restaurants, but we've debated a little bit now we think we're better off focusing on upgrading the existing restaurants for now that will take us in time and then we'll see how that goes and then back to the decision of what exactly we do with an additional restaurant.
And our next question will come from Chad Beynon with Macquarie.
This is Sam on for Chad. We know it's still early days and there's a lot to be determined on how sports betting or iGaming legalization might occur in Alberta. And now it looks like Maryland is a possibility. I was hoping to get your high-level thoughts on your online strategy for those regions? And ultimately, if or when they legalize, if it can be a net positive for your operations in those regions?
I'll take the first part and then hand over to Peter. OSP and iGaming is already legal and better. It's provided by the Alberta Gaming and [ Jigar ] Commission and the casino operators are not participating in that. Would you like to comment on Maryland and our overall strategy, which will probably keep as we have it now.
Yes. The Maryland are discussing to legalize iGaming, and we certainly look forward to that with our Life Science. The approach will be the same as we do in Colorado and in West Virginia. And in Nevada, we are providing our license to experience a large online game operators. They pay us a percentage of the revenues they generate with our Life Science and that has a minimum annual guarantee included for us.
Outside of Maryland, we also have hopes for Missouri to legalize sports betting, hopefully, this year because, as you know, we have 2 licenses there. And there's strong interest from the online operators. So that would provide quite a nice boost to our EBITDA in Missouri as well. We have no costs associated with the agreements. So everything that we receive goes to the bottom line. And we do feel it's a net-net positive for us. at all the locations where we have that strategy in place already. In West Virginia, as you know, it's not only sports betting, but also already iGaming. And we work with 2 providers there, the [ drops ] work were well for us.
And then a follow-up. I wanted to ask about Poland and the ramp for the remainder of the year. Is it possible you guys could start run rating the double-digit EBITDA that we saw in '22 this year? And then on the M&A front, is that something discussions you, guys, plan on having right away? Or do you have to -- are you going to wait for the properties to sort of ramp up to full capacity?
I'll answer that one and then hand over to Peter again. So the investment in our casinos are successful. And we believe that at the late in 2025, we will be back to, could call normal in casinos in Poland, and that would mean 2-digit EBITDA figures in USD. 2024 has started very well in spite of the fact that still work [ love ] is closed. It's too early to say. We don't want to speculate, but it's developing in the right direction. And Peter, maybe you want to talk about our plans for [ tailing ].
Yes. As we have received any licenses again, we have now restarted the sales process early stages, but we think this year, second half of this year, we have -- we should have a better chance than before to get a reasonable price for our operations there.
[Operator Instructions]. Our next question will come from Jordan Bender with Citizens JMP Securities.
Aaron Lee on for Jordan. So knowing that [ Renal ] has traditionally been a competitive dating market. I was wondering if you could provide some details to the [ iron ] through the first quarter. and what's the group and convention outlook for the year looking like?
Okay. So market, obviously, renovs is a very competitive market and I think everybody has seen pressure partly due to the -- coming from the bad weather. As you know, part of our market is west of the Rocky Mountains. And whenever there is either in an announcement of snow possibly coming or actually, we and then all of Renal Mark's impact.
Concerning the conventions and 2024 in fact is then, I think it has the most exciting calendar. We have a [ prepared line ] up of brands. And we have at events like the annual [ Rick Cooker ], with a new [ Regi ] Festival out August 9 and the new October [ phase ]. Our 8,500 feet out or [ seat ] is a big draw answer quite frankly, a unique [indiscernible].
Okay. That sounds great. And just a follow-up. With the capital plan discussed, can you give us a thinking about the remaining real estate for the Nugget, would you ever consider going 100% out there to help pay down debt?
Could you be sequentially [ repeat ] I can not hear it.
Yes. So I was wondering if you would -- on the main estate for the nugget, would you ever consider going 100% of cover and how can pay down debt?
We don't consider that at this point in time. But we have some more time to make a time decision.
[Operator Instructions]. And it appears we have no further questions at this time.
All right. Very good. Thanks, everybody. We appreciate you joining our call today. and we will talk again after the first quarter. Till then, thank you, and goodbye.
And this will conclude today's conference. Thank you for participation, and you may now disconnect.